Construction Spending Hits 15-Month Peak : * Economy: Single-family housing leads the way. Also, manufacturing grew in April for a third straight month, a survey found.
Single-family housing activity helped push overall construction spending to its highest level in 15 months in March, the Commerce Department said Friday in a report seen as a fresh sign that housing is leading the economic rebound.
The March data coincided with the release of a report from the nation’s purchasing managers that U.S. manufacturing industries strengthened for the third straight month in April, although the rate of improvement had slowed.
“Housing continues to run ahead of the rest of the economy and therefore is acting as a stimulus for economic growth, even though it is not as strong as it usually is in a recovery,” said Mark Obrinsky, an economist with the Federal National Mortgage Assn.
Overall, spending on residential, non-residential and government projects rose 1.6% to a seasonally adjusted annual rate of $419.9 billion, the Commerce Department reported.
It was the third straight increase and boosted construction spending to its highest level since it reached $421.3 billion in December, 1990.
The report said that spending in February rose 0.9%, to $413.3 billion, rather than falling 0.4% as initially estimated. It also revised the January advance, to 2.2% from 1.8%.
Residential spending was up 1.8% in March, to $173.7 billion, after a 0.4% increase in February.
Spending on single-family homes rose 3.6%, to $114.1 billion, in March after jumping 10.1% a month earlier.
“Housing starts have been increasing fairly steadily” since the housing recession ended in January, 1991, Obrinsky said.
But the multifamily sector, including apartments and condominiums, was down 10.7%, to $10.9 billion, after falling 14.1% in February.
Obrinsky said the vacancy rate for buildings with five or more units was 10.2% in the first-quarter, unchanged from the previous three-month period.
“You’re not going to generate much new construction when you have so many apartments unrented,” he asserted.
Spending on non-residential construction was up 0.6% in March, to $88.2 billion, after a 1.4% gain the previous month. Industrial construction was up 0.6% and “other commercial” construction, which includes shopping centers, rose 0.9%.
But office building was down 5.3%, and hotel and motel construction dropped 11.4%. “It’s understandable given the essentially overbuilt conditions of both categories in many parts of the country,” Obrinsky said.
Government construction rose 3.1%, to $118.8 billion, after advancing 1.5% in February. Spending for new school buildings was up 7.7%.
“One would think that there won’t be sizable increases in that area over the rest of the year, given the very tight fiscal conditions of most of the states and municipalities,” Obrinsky contended.
“To the extent that construction projects can be postponed, one would expect them to be postponed,” he added. “Obviously, all can’t be postponed and that’s the construction we are seeing right now.”
Meanwhile, economists interpreted the survey results from the National Assn. of Purchasing Management as a sign that the nation’s emergence from recession may be weaker than previously thought.
“We’re definitely in an economic recovery, but it’s rather limited and small,” said William Veronda, an investment strategist at Financial Funds, a Denver-based money management concern.
New orders, export orders and production all advanced in April, but at weaker levels than in March. Unemployment also grew, though at a slower pace. Prices fell for the fourth straight month, though the rate of decline slowed.
The survey’s index of growth in manufacturing dropped to 51.3% in April, weaker than its 54.1% showing in March and 52.4% in February but still substantially above its 47.4% showing in January.
A reading above 50% in the index indicates that the manufacturing economy is generally expanding. A reading below 50% suggests that it is generally declining.
Robert J. Bretz, chairman of the association’s business survey committee and director of corporate purchasing at the office machinery company Pitney Bowes Inc., said the February and March readings were particularly strong, so he wasn’t surprised to see the growth slow down.
Still, he said in a telephone interview, “it’s always a disappointment not to see things go straight up.”
The purchasing managers’ report is considered a sensitive barometer of the economy and often provides useful insights into the nation’s overall economic direction.
Construction Spending
Billions of dollars, seasonally adjusted
March, ‘92: 419.9
Feb., ‘92: 413.3
March, ‘91: 401.9
Source: Commerce Department
Purchasing Managers’ Index
The purchasing managers’ index tracks overall business activity at 300 industrial companies.
April, 1991: 42.1%
April, 1992: 51.3%
Source: National Assn. of Purchasing Management.
